Foreign Direct Investment

What is Foreign Direct Investment (FDI)?

• A firm invests in government bonds of foreign countries

• A firm invests in local businesses within the home country

• A firm invests directly in new facilities to produce or market in a foreign country

• A firm invests indirectly in foreign stocks

Which of the following is an example of Greenfield investments?

• Amazon buying a logistics company in Brazil

• Google setting up a new office in France

• Apple acquiring a software company in Japan

• Microsoft merging with a local company in India

What is an advantage of Acquisition over Greenfield investments?

• Acquisitions are slower to execute

• Acquisitions are quicker to execute

• Acquisitions are riskier than Greenfield investments

• Acquisitions allow firms to have tight control over operations

Why is FDI favored over Exporting?

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According to the Eclectic Paradigm by John Dunning, what are Location-specific Advantages?

• Advantages that are not valuable to the firm

• Advantages that are only valuable in the home country

• Advantages that are tied to a particular location

• Advantages that are not tied to a particular location

What is the Radical View on FDI?

• MNEs exploit host countries for the benefit of their home countries

• FDI increases overall efficiency of the world economy

• FDI should be distributed based on comparative advantage

• FDI is beneficial for host countries

What are the Resource-Transfer Effects of FDI on the host country?

• FDI has no impact on the host country

• FDI leads to adverse effects on the balance of payments

• FDI brings capital, technology, and management resources

• FDI brings jobs that would otherwise not be created

What are the Adverse Effects on Competition in the host country due to FDI?

• Foreign MNEs have no impact on competition

• Foreign MNEs may have greater economic power than local competitors

• Foreign MNEs do not affect competition in the host country

• Foreign MNEs have less economic power than local competitors

What are the Home Country Benefits of FDI?

• Negative employment effects

• Outward flow of foreign earnings

• Loss of valuable skills from foreign markets

• Capital outflow required to finance FDI

What is the purpose of Encouragement Inward FDI by host countries?

• To restrict foreign firms from investing

• To maximize resource-transfer and employment benefits

• To eliminate double taxation of foreign income

• To encourage outward FDI